Update: Timeline Shift for 'Gainful' Rules

September 24, 2010

(Update: Education Department officials announced Friday afternoon that they would delay until early 2011 publication of final rules aimed at ensuring that vocational programs prepare students for "gainful employment." Department officials said the move would not delay the ultimate implementation of the gainful employment proposals past their current July 2012 date, and characterized the decision as an opportunity to hold public hearings and other meetings to give the many people who've weighed in on the rules more time to "clarify the comments they’ve submitted and respond to questions from department officials."

“Let me be clear," Education Secretary Arne Duncan said in a prepared statement. We’re moving forward on gainful employment regulations. While a majority of career colleges play a vital role in training our workforce to be globally competitive, some bad actors are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use.”)

WASHINGTON -- The U.S. Department of Education is expected to announce today that it will postpone the publication of some of its final regulatory language on rules aimed at ensuring that graduates of vocational programs find “gainful employment,” which would reduce the time that for-profit colleges and other institutions affected by the rules would have to prepare for them, but not change when they would take effect.

Speculation that the department might be weighing a delay intensified Wednesday, after Education Secretary Arne Duncan responded to a question about already swirling rumors by saying that department officials were "keeping [their] options open." They heated up even more on Thursday after an industry analyst said in a report to investors that the department would announce a delay later that day. Justin Hamilton, a department spokesman, confirmed that the department would today “announce the timeline for publishing final regulations around higher education program integrity,” but declined to offer any more details.

All signals indicated that the department’s “timeline” for release of its final regulations detailing the debt service-to-income and repayment rate metrics that make up the substance of the gainful employment rules will push their release until after Nov. 1, the deadline for the department to issue any regulations that would take effect on July 1, 2011. But, under the timeline set by the department in its July notice of proposed rule making, those metrics were to be phased into use beginning July 1, 2012.

As long as the final rules are published by any point before Nov. 1, 2011, the rules would still take effect in mid-2012.

Final versions of regulations in 13 other areas -- including incentive compensation, definition of a credit hour and state authorization of institutions -- that were developed during the same negotiated rule making process as gainful employment but released in draft form in June, more than a month before the draft that included the metrics, would still be published by Nov. 1 to take effect next summer.

Part of the regulations on gainful employment, requiring institutions to provide new data and disclosures on student debt, which were made public in the June NPRM, would most likely be released this fall, since they were slated to take effect next summer and are far less controversial than the metrics.

Terry W. Hartle, senior vice president of government and public affairs at the American Council on Education, said department officials would “expand their options” with a delay, giving themselves time to fine-tune the metrics put forward in July and to carefully read and consider the tens of thousands of submissions that flowed in during the public comment period about the gainful employment rules that ended earlier this month. “A delay gives the department more time to review comments and engage with the extremely large number of groups that have expressed interest in the regulations.”

Investors on Thursday took the possibility of a delay as a sign that the department might be reconsidering its proposed rules. Stock prices of the publicly traded for-profit colleges spiked midday as the rumor spread and most closed up for the day, but a delay by no means ensures a more favorable outcome for the for-profit sector.

“The department has bought more time for themselves,” Hartle said, in a way where “they haven’t lost anything.” Officials can issue final rules that are as tough -- if not tougher -- than those proposed in the July NPRM and can do so in a way that allows for greater attention to the sort of details that could lead to unintended consequences of the sort they hope to avoid.

As estimates of the total number of comments have shifted ever upward, from more than 80,000 to more than 90,000 -- and with some sources outside the department saying the tally is close to 130,000 -- a delay just to process and respond to the sheer number of comments started to seem probable to some observers.

Janice Block, Kaplan Higher Education’s executive vice president, general counsel and chief compliance officer, noted that the Securities and Exchange Commission delayed the publication of a set of final regulations last year after receiving 500 comments on an notice of proposed rule making it had issued. Other agencies, she said, have done the same for volumes of comments far smaller than that received by the Education Department on gainful employment.

If the department were to publish its full rules on gainful employment by Nov. 1, it would face immediate legal challenges, she said. “It’s hard to imagine that given the numbers we’re dealing with here and the ways the regulations have been drafted, that we wouldn’t see a number of legal challenges.”

Forcing a delay by overwhelming the department with more comments than it could feasibly process between the end of the public comment period on Sept. 10 and Nov. 1 was probably an intentional strategy on the part of for-profit college officials, said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers. “Obviously the astroturf campaign of the industry has had an effect because the department does have an obligation to consider all the comments it receives,” he said. “But I don’t think it will lead the Obama administration to back off.”

Pauline Abernathy, vice president of the Institute for College Access and Success, said her group “would obviously be concerned about anything that would increase the time until students and taxpayers see greater protection,” but would not object to a delay that does not substantively change the timeframe in which the rules take effect.

The administration appears to still be bullish on tightly regulating the for-profits. In a statement last week on the department’s release of 2008 federal student loan default data, Duncan hinted that the high default rate for the for-profit sector as a whole supported the need to push ahead on gainful employment. “While for-profit schools have profited and prospered thanks to federal dollars, some of their students have not. Far too many for-profit schools are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use. This is a disservice to students and taxpayers, and undermines the valuable work being done by the for-profit education industry as a whole.”

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